Guidance Note: Interpretation of the Surcharging Standards
The Reserve Bank of Australia (the Bank) is providing this Guidance Note to assist the relevant schemes and any participant in the relevant schemes to implement and comply with the following standards (the Standards), as varied, with the commencement date of 18 March 2013:
- Standard No. 2, Merchant Pricing for Credit Card Purchases; and
- The ‘Honour All Cards’ Rule in the Visa Debit and Visa Credit Card Systems and the ‘No Surcharge’ Rule in the Visa Debit System.
1. The Purpose of this Guidance Note
This Guidance Note is intended to assist any parties that may be considering the appropriate level of card surcharges following the changes to the Standards. The Standards emphasise the right of merchants to recover their card acceptance costs through a surcharge, while allowing card schemes to address cases where merchants are surcharging at a higher level than is warranted. The Standards allow the card schemes to limit surcharges to ‘the reasonable cost of acceptance’, which includes, but is not limited to, the merchant service fee. A number of parties have expressed concern that uncertainty about the costs that might be considered part of the reasonable cost of acceptance could result in disputes and unnecessarily increase compliance costs. This Guidance Note therefore sets out the Reserve Bank's view on the costs that can appropriately be included in the ‘reasonable cost of acceptance’.
The Standards make it clear that the merchant service fee charged to the merchant forms part of the reasonable cost of acceptance. Section 2 of this Guidance Note outlines merchants' costs in addition to the merchant service fee (‘additional costs’) that in the Bank's view might appropriately be included in the reasonable cost of acceptance if the merchant chooses to do so. There is nothing in the Standard which prevents a scheme from seeking verification of costs in the event that it believes a merchant is surcharging in excess of reasonable costs. It is the Bank's expectation that merchant service fees and other costs payable to acquirers will typically represent the bulk of the reasonable cost of card acceptance for merchants and that no additional verification should be required for surcharges set at this level.
2. Additional Costs that Form Part of the Reasonable Cost of Acceptance
The additional costs that the Bank considers are appropriate to include in the reasonable cost of acceptance are limited to those specified in paragraphs (a) to (e) below, where those additional costs can be separately identified and costed as a direct cost of card acceptance. The additional costs include and are limited to:
- Other costs payable to acquirers. This cost category includes, and is limited to: fees for the rental and maintenance of payment card terminals; scheme fees incurred in processing card payments and levied by the acquirer (e.g. international service assessments or cross-border transaction fees); and other fixed fees for providing payment acquiring equipment and services (e.g. other monthly or annual fees that are included on the merchant's card processing statement).
- Costs payable to other payment service providers. This cost category includes, and is limited to: gateway fees; switching fees; and fees for the provision of equipment and/or services required to accept card payments.
- Merchants' own costs related to card acceptance. This cost category includes, and is limited to: the merchant's costs of purchasing and maintaining their own card acceptance infrastructure; scheme fees levied on the merchant by the scheme; and line rental and communications charges directly related to the use of payment card terminals.
- Fraud costs related to card acceptance. This cost category includes, and is limited to: any fixed equipment, systems or development costs that are incurred by the merchant to implement fraud mitigation procedures, including those mandated by scheme rules, apportioned over a period of five years from the date when the cost was incurred; and the transaction value of any fraud-related chargebacks or chargeback fees charged by the acquirer or a payment service provider, provided that the merchant has adopted generally available fraud mitigation procedures.
- Any fixed equipment, systems or development costs, not already captured in paragraphs (a) to (d), that are incurred by the merchant as a direct result of compliance with scheme rules or mandated requirements, apportioned over a period of five years from the date when the cost was incurred.
Where an additional cost applies to multiple payment methods (for example a fixed monthly terminal rental cost that allows card payments for more than one card scheme or card type to be made), it should be apportioned either according to the actual transaction mix based on the number of transactions or evenly between the relevant payment methods.
3. Costs that are Excluded from the Reasonable Cost of Acceptance
For the avoidance of doubt, costs that the Bank does not consider to form part of the reasonable cost of acceptance include, but are not limited to:
- any fines levied by an acquirer for non-compliance with any rules or standards
- general business costs, such as staff training, electricity and premises costs. For instance, staff time employed in operating payment terminals or training to operate payment terminals would not be eligible.
Review and Disclaimer
The Guidance Note does not amend or modify the Standards. The Bank will review the operation of the Standards and this Guidance Note in the light of experience. The Bank may update or vary the Guidance Note from time to time as necessary, including in response to changes in the way that merchants are charged for card acceptance. Any updates or variations to the Guidance Note will be advised through a media release issued on the Bank's website. The information contained in this Guidance Note does not constitute, nor should it be treated as, legal advice. The information contained herein is current as at the date of the Guidance Note and is based on the Standards and the designation of the schemes as at the applicable issue dates.
- A per transaction cost for all fixed costs may be calculated by dividing the fixed cost for a particular period by the number of transactions over the same period for the scheme(s) to which the cost applies.
- In cases, including some business models in the taxi industry, where the ‘merchant’ is a payment services provider that charges fees directly to the end-user, the reasonable cost of card acceptance would also include some allowance for the capital cost of the provider. In the case of the taxi industry, the Bank notes that the 2012 draft report of the Taxi Industry Inquiry in Victoria suggested regulating service fees so they did not exceed the resource cost of providing electronic payment services – i.e. excluding financial flows between processors, operators and networks – and found no evidence that this should exceed 5 per cent of transaction value.
- The per transaction cost for the fixed equipment, systems and development costs may be calculated by dividing the fixed cost by the estimated number of transactions over the ensuing five years of the scheme(s) to which the cost applies. The estimated number of transactions may be calculated by multiplying transactions in the past 12 months by five.
- The per transaction cost may be calculated in the same manner as for paragraph (d).
- The actual transaction mix may be measured as the mix based on the number of transactions in the preceding 12 months.